The field guide for senior PB bankers to win more business, with less risk, faster — through One-Bank alignment, trusted-advisor thinking, and bias-aware decisions.
Why this matters (fast)
Great banking isn’t just math; it’s judgment under uncertainty. Judgment gets distorted by cognitive biases (how our brains shortcut) and structural biases (how our workflow/coverage is set up). Mastering both gives you a consistent edge: deeper client share, safer structures, and faster approvals.
The 19 Cognitive & Structural Biases (with fixes)
Use these as a checklist during prospecting, structuring, and credit committee prep.
1) Confirmation Bias
Looks like: Hunting for data that supports “it’s a safe name,” ignoring red flags.
How to counter:
- Assign a devil’s advocate reviewer to find disconfirming evidence.
- Force a red/amber/green table with at least three red items before approval.
2) Anchoring Bias
Looks like: Leaning on last year’s EBITDA multiple or past LTV as “the number.”
How to counter:
- Present 3 independent anchors (peer comps, cycles, region).
- Run ±20% sensitivity on the anchor and show decision impact.
3) Overconfidence Bias
Looks like: Assuming refinancing will be easy “as always.”
How to counter:
- Add a refi-fail scenario to every term sheet.
- Calibrate with hit-rate and covenant breach stats from your own book.
4) Availability Bias
Looks like: Overreacting to a recent default/headline; underweighting base rates.
How to counter:
- Bring a 5–10 year loss dataset to every debate.
- Use base-rate priors before case specifics.
5) Recency Bias
Looks like: Extrapolating two good quarters into the future.
How to counter:
- Use multi-year moving averages for key ratios.
- Require a cycle-through stress (peak-to-trough) before sign-off.
6) Loss Aversion
Looks like: Declining a good deal due to fear of a visible loss.
How to counter:
- Evaluate RAROC vs risk caps (not absolute loss).
- Pair with downside protections (escrows, triggers) to keep the upside.
7) Sunk Cost Fallacy
Looks like: “We’ve invested months — let’s push it through.”
How to counter:
- Run a day-zero test (“Would we approve if it came today?”).
- Use an independent kill-switch reviewer late in process.
8) Herding Bias
Looks like: Following competitor term sheets into crowded trades.
How to counter:
- Start with first-principles repayment mapping before comps.
- Maintain a concentration dashboard (sector, sponsor, geography).
9) Status Quo Bias
Looks like: Rolling facilities without re-testing structure.
How to counter:
- Do zero-based renewals for top exposures.
- Present a clean-sheet structure alongside “as-is” at renewal.
10) Survivorship Bias
Looks like: Studying only winners and concluding the sector’s fine.
How to counter:
- Review defaults/exits and derive pattern risks.
- Add reverse-case studies to training and memos.
11) Authority Bias
Looks like: “Chairman says it’s safe.”
How to counter:
- Use evidence-over-rank templates (facts table signed by all).
- Anonymous pre-votes in committees before open debate.
12) Groupthink
Looks like: Fast consensus, low challenge.
How to counter:
- Rotate a designated dissenter each meeting.
- Require two alternative structures per proposal.
13) Halo Effect
Looks like: Star promoter ⇒ assumed strong credit.
How to counter:
- Score each risk pillar (cash flow, leverage, governance, FX) separately.
- Demand evidence per pillar before overall rating.
14) Narrative Fallacy
Looks like: Buying into “the growth story” untested.
How to counter:
- Convert narratives to modelled drivers (price, volume, margin).
- Stress story breakers (price −30%, volume −20%, delay +6 months).
15) Self-Serving Bias
Looks like: Attributing wins to skill, losses to “black swans.”
How to counter:
- Run post-mortems on wins and losses with cause attribution.
- Track a learning log → feed changes into term sheets/covenants.
Structural Biases from PB Practice
16) Relationship Omission Bias
Multiple requests from a large family without mapping people and investment vehicles
Looks like: Approving piecemeal asks; missing intra-family exposures.
How to counter:
- Produce a single Relationship & Entity Map per family (people, SPVs, trusts, % ownership, guarantees).
- Use a group-level limit & trigger sheet (one-bank view of exposure, covenants, early-warnings).
17) Corporate Network Myopia
Not connecting to the corporate network beyond dividends/net worth
Looks like: PB loans sized by dividends; missing operating cash, debt walls, and supplier risk.
How to counter:
- Run a 3-flow scan: operating cash (company), financial flows (debt/equity), personal flows (dividends/lifestyle).
- Align with CB for joined underwriting (trade/RCF + PB lombard + dividend escrow).
18) Liquidity Mirage Bias
Overestimating collateral value and monetisation speed
Looks like: Headline net worth looks huge; realisable cash is thin under stress.
How to counter:
- Build a Liquidity Ladder with haircuts + time-to-cash by asset (T+2, 30–90 days, >180 days).
- Tie LTV and covenants to ladder tiers (lower LTV for slow/volatile assets).
19) Insider Concentration Bias (Promoter Share Financing)
Over-reliance on client’s own-company shares
Looks like: High LTV on promoter stock with low free float/vol.
How to counter:
- Use blended collateral pools (promoter shares + external liquid assets + dividend escrow).
- Add dynamic LTV/price triggers and standstill on pledges during events (buybacks, M&A, short attacks).
Putting it into practice (checklist)
- One-Bank Ritual: RM + Risk co-create the Relationship Map, Liquidity Ladder, and Repayment Sources before terms are discussed.
- Bias Guardrails: Every memo includes a Bias Box: “Top 3 biases likely here & how we neutralised them.”
- Faster, Safer Approvals: Pre-agreed structuring playbooks (e.g., promoter-share lending, dividend bridges, cross-border security) with triggers accelerate time-to-yes.
